Medicare, Medicaid in dire financial situations

WASHINGTON—Social Security may top the Bush administration's domestic agenda, but Medicare's financial problems are more dire and Medicaid's are more immediate.

The Medicare trust fund, which pays inpatient hospital costs and short-term nursing-home stays for the program's nearly 42 million seniors, is slated to become insolvent in 2019, more than 20 years before both of Social Security's insolvency date estimates.

Funding problems for Medicaid—a major concern for states, which pay roughly 40 percent of the program's costs—are being felt now. Medicaid provides vital health services for 52 million of the nation's poor, disabled and elderly. But states are cutting benefits and raising eligibility requirements to deal with rising Medicaid enrollments due to the sputtering job market.

Members of Congress, state lawmakers and local health officials nationwide are bracing for probable White House plans to cap or cut federal Medicaid funding in order to trim the federal budget deficit. In confirmation hearings this week, President Bush's nominee for Health and Human Services secretary, Utah Gov. Mark Leavitt, didn't rule out either option. But he said Medicaid could cover more people at the same cost if states were given more flexibility in designing their programs.

In addition to funding cuts or freezes, the Bush administration could also revisit its failed 2003 effort to transform Medicaid into a block grant program, in which states would get a fixed amount of federal funding and would have to make up any program shortfalls themselves. Currently, if state Medicaid costs increase, federal funding increases to keep pace.

For Senate Budget Committee Chairman Judd Gregg, R-N.H., and House Budget Committee Chairman Jim Nussle, R-Iowa—both concerned about federal spending for benefit programs—Medicaid could be first in line for cuts, said Ron Pollack, president of Families USA, a liberal patient-advocacy group in Washington.

"We think the debate that is going to take place constitutes, literally, the largest threat to public health coverage in the history of our country," Pollack said.

Medicaid, Medicare and Social Security all face the same problems: rising numbers of beneficiaries and revenue shortages. Medicare and Medicaid also have to contend with spiraling health care costs. Medicare, while a logical candidate for cost containment or other help, is unlikely to see any from Bush for political reasons. He pushed through the prescription-drug benefit, which, starting in 2006, is expected to increase the program's costs by more than $500 billion over the next 10 years.

An influential federal advisory panel, however, recommended earlier this month that Congress scale back from 3.2 percent to 2.8 percent a planned increase in Medicare payments promised to hospitals in 2006. The panel also recommended a freeze in Medicare payments to nursing homes and home-care agencies next year. The Medicare Payment Advisory Committee said that the proposals, taken together, could save more than $10 billion over five years.

Even with those changes, Medicare's problems are harder to fix than Social Security's, said Gail Wilensky, a senior fellow at Project HOPE, an international health foundation in Millwood, Va.

"Social Security is about pensions, moving money, who pays and who gets," Wilensky said. "It's a much simpler concept to consider than Medicare, which is not only about financing, but how health care should be delivered and who should bear what share of the costs under what circumstances."

But just as some experts feel Social Security's problems are being overblown, some say the same about Medicare.

Bruce Vladeck, a former Medicare administrator who's now a health care consultant with Ernst & Young in New York City, said Medicare is much better off now than it was in 1997 when it appeared the trust fund would go broke by 2001.

Congress responded then by passing the Balanced Budget Act, which cut Medicare expenditures and pushed the insolvency date back to 2025. But the sour U.S. economy of recent years plus rising health care costs have pushed the insolvency date up to 2019. But that can and will be addressed, Vladeck said.

"The fact is that every eight to 10 years, throughout the history of the program, people have made changes that have substantially changed those estimates" of insolvency dates, Vladeck said.

While Congress can raise taxes or cut benefits to meet Medicare's and Medicaid's growing obligations, neither provides a long-term fix because spending for both programs is largely at the mercy of rising health care costs. And Americans have resisted previous efforts, notably during the Clinton administration, to curb costs by limiting access.

"This is not a country that's keen on having anyone stand between it and the latest greatest medical technology or medical specialist," Wilensky said.

Medicare fixes, Wilensky and others believe, will ultimately require tolerance of payment cuts from the health industry or tax hikes from Congress or both.

"That's why the Medicare—and Medicaid—problem is fundamentally different from the Social Security problem and much harder to fix," said Vladeck.

Medicaid is also crumbling under the weight of higher health costs, rising enrollment and shaky funding.

Since 2000, the number of people living in poverty has risen by 8 million, and 5 million more people have become uninsured. The increases caused Medicaid enrollment to swell and program spending to grow faster than state revenues. States responded by restricting payments, benefits and eligibility.

The federal government kicked in $10 billion in extra assistance in 2004. But without that money this year, state Medicaid spending is projected to increase by nearly 12 percent. The federal government matches state Medicaid spending at a rate that varies from 50 percent to 77 percent.

While states' revenues are rebounding, governors still want to curb Medicaid spending, which now rivals education as the most costly state public service. That's what led Tennessee Gov. Phil Bredesen to call recently for cutting 323,000 low-income adults in his state from the Medicaid program.

The White House also wants to curb Medicaid spending, but only the federal portion.

Republican attempts to do so in 1997 helped trigger a federal budget stalemate that led to a temporary government shutdown before congressional leaders finally abandoned the effort. In 2003, the nation's governors rejected Bush's plan to block grant Medicaid, and 48 senators said they would filibuster any legislation to do so, Pollack said.

Similar opposition is already shaping up for the Medicaid cuts expected in Bush's 2005 budget proposal. A Jan. 12 letter urging Bush not to cut or cap federal Medicaid funding was signed by several hundred national and state organizations, including the AFL-CIO, March of Dimes and the U.S. Salvation Army.

Equally disturbing for states is a provision of the Medicare Modernization Act that requires them to pay a portion of the drug costs for Medicaid/Medicare recipients known as "dual eligibles" when the drug benefit begins in 2006. Dual eligibles are typically poorer, sicker and, therefore, more costly than most Medicare and Medicaid enrollees.